Category: Legal Articles

NEW U.A.E INSOLVENCY LAW

insolvency law article background image

Insolvency is the legal term describing the situation of a debtor who is unable to pay his, her, or its debts.

HOW IT WORKS:

The new insolvency law, recently approved by the UAE Cabinet, gives the citizens and expatriates both to follow the organized system of payment to settle debts.

Under the new law, legal action may not be taken against debtors if they invoke their insolvency status and begin the process of restructuring their debt. However, the approved law does not decriminalize the bounced cheque.

The new law will protect debtors from legal prosecution, decriminalise the financial obligations of insolvent persons, and offer them an opportunity to work, be productive and provide for their families. The law will be implemented in January 2020.

All your questions answered: –

What is the purpose of a new law on the insolvency of natural persons? What is the legislative source of this law?

The Insolvency Law of Natural Persons addresses a debtor’s inability (if the natural person does not fit the description of a trader) to pay their debts due to bankruptcy and debt default. This is known as the ‘insolvency of the natural person’.

What is the difference between insolvency law and bankruptcy law?

The insolvency law differs from bankruptcy law, which was promulgated by Decree-Law No. 9 of 2016, particularly in the definition of the debtor. The Insolvency Law for Natural Persons applies to a natural person who is not engaged in an economic activity and is not a trader. However, the primary purpose of both laws is the same, as both exist to protect the common interests of both the creditor and the debtor in a fair and balanced manner. The risk is divided between them in such a way so as to alleviate the debtor from the cycle of financial difficulties and enable them to pay off their accumulated debt.

Does this law have any particular characteristic in terms of legislation that makes it unique from ones in other countries?

The promulgation of this federal insolvency law will underscore the UAE’s leading position. Although important, independent legislation dealing with the insolvency of a natural person through specialized independent legislation is rare.

In addition to all its economic objectives, this law has another positive aspect to it: it ensures the protection of the debtor’s dignity as a natural person, and helps create an opportunity for them to manage their finances and reduce their financial burden.

What are the expected repercussions of the Insolvency Law for Natural Persons on the financial and economic stability of the nation?

The insolvency law will bolster the economic stability of the nation and provide a secure environment for personal loans to the contentment of both the creditor and the debtor. The law provides the necessary balance to guarantee the rights of creditors and debtors, and encourages increased cash flows, in support of comprehensive and sustainable development efforts in the country.

Will the law help debtors overcome financial difficulties?

The proposed law provides two means to address the insolvency of individuals; first, through the possibility of settling financial obligations, and second through insolvency and liquidation of funds.

If the debtor is facing current or anticipated financial difficulties that prevent them from settling all their debts, the debtor can file an application with the court in order to have the opportunity to settle their financial obligations according to easy procedures that provide them with the necessary assistance, with the court appointing one or more experts to assist them during these proceedings. Once a plan to reorganize and settle financial obligations is being prepared, the settlement plan shall be voted on by the creditors in line with pre-ordained mechanism. The plan shall be implemented by the debtor directly, with the assistance and oversight of experts, and the court’s supervision.

 How do the debtors settle their obligations?

The debtor shall advance to the court and request opening the procedures for settling their financial obligations without litigating any person therein to settle their financial obligations. This is applicable if they are in insolvency in accordance with the provisions of the insolvency law.

What documents must be provided by the debtor to request a settlement of financial obligations?

The debtor shall attach the following documents when applying for the settlement of financial obligations:

    • A memorandum containing a brief description of their financial position and any data related to their sources of income, both inside or outside the country. Their professional, vocational or professional status, as the case may be, and the liquidity projections of the debtor, as well as the sources of such liquidity within a period of 12 months from the submission of the application.
    • A statement of the names and addresses of creditors, whose debts have been defaulted or are expected to be defaulted, the amount of each debt, the dates of maturity and the guarantees provided to the creditors, if any.
    • A detailed statement of the debtor’s movable and immovable assets inside and outside the country and the approximate value of each on the date of the application.
    • A statement of any legal or judicial proceedings or actions taken against the debtor.
    • A statement by the debtor that they are facing current or anticipated financial difficulties and that they are unable to, or are not expected to be able to pay their debts, at the time of application, or in the future.
    • The funds necessary to support the debtor, their family and any dependents.
    • The debtor’s proposals for the settlement of their financial obligations.
    • The debtor shall nominate an expert to undertake the proceedings in accordance with the provisions of this law.
    • A statement that discloses financial transfers outside the country that took place during the past 12 months.
    • Any other documents supporting the application, or as requested by the court.

What are the procedures for the debtor if they are unable to provide the required information?

The debtor shall state the reasons for not furnishing the required documents or information in their application. If the court considers that the documents submitted are insufficient to rule on the application, it may grant the debtor time to submit any additional data or documents.

How long does the court take to decide on the debtor’s application?

The court shall decide on the application without notice, or pleading, within a period not exceeding five working days from the date of submission of the application to it fulfilling all required conditions. The court shall, if it accepts the request, decide to open the procedure for settlement of financial obligations.

What follows from the court’s decision to open the procedures for settling financial obligations?

The decision of the court shall cease the obligation of the debtor to apply for insolvency and the liquidation of their property. Suspension of execution shall continue during the period of settlement of financial obligations unless the debtor breaches their obligations as set out in accordance with this law.

What does the court’s decision to open the settlement of financial obligations entail?

In the decision to open a settlement of financial obligations, the court shall appoint one or more experts to assist the debtor in settling their financial obligations. The expert shall not be a creditor of the debtor, or be associated with them in any interest, or kinship until the fourth degree.

When can the court decide to reject the request for settlement of financial obligations?

The court shall decide not to complete the procedures for the settlement of financial obligations and refuse a request for settlement of financial obligations in the following cases:

    • If the court determines that the debtor has committed, or refrained from, taking any action with a view to concealing or damaging any part of their property.
    • If the debtor provides false statements about their debts, rights or funds.
    • If the debtor is in a state of non-payment of any of their debts on maturity for more than 40 consecutive working days as a result of their inability to fulfil these debts.

What steps does the appointed expert undertake to prepare a financial liability settlement plan?

    • The expert shall prepare a plan in cooperation with the debtor, provide the creditors with a copy, and deposit a copy with the court within 22 working days, from the date of the court’s decision to instruct the expert to prepare the plan. The court may authorize an extension of the submission period if the need arises.
    • The expert shall invite the debtor and creditors to one or more meetings, specifying the time and place of the meeting, to discuss and vote on the plan. They shall be invited to attend the meeting by any means of communication as deemed appropriate.
    • The first meeting shall be held within a period not exceeding 10 working days from the date of providing the creditors with a copy of the plan. The debtor and creditor shall attend the meeting in person, or by someone authorized on their behalf.

What is the proposed duration of the execution of the financial liability settlement plan?

The proposed period for the execution of the plan may not exceed three years from the date of the ratification of the plan by the court.

Who is not eligible to vote on the plan?

    • The debtor’s spouse.
    • Any person financially supported by the debtor.
    • Relatives of the debtor up to the second degree.

Is it permissible to amend the plan after the financial settlement procedures?

Yes, amendments may be made; the expert shall request the court to approve the amendments, if it is deemed necessary to make amendments to the plan during its implementation. The court shall, before deciding on the application, notify all creditors who may be affected by such amendments, and who deem it necessary to notify the creditors, and the court may issue a decision to authorize the amendment in whole or in part, or to reject it.

When is the financial settlement procedure plan terminated or invalidated?

The court shall decide on the termination of the financial settlement of the debtor in the following cases:

    • If the court finds that the debtor’s financial obligations cannot be settled.
    • If it is impossible to implement the plan because the debtor ceases to pay any of their debts on due dates for more than 40 consecutive working days, as a result of their failure to meet these debts.
    • If the debtor requests the court to terminate the execution of the plan before the settlement of financial obligations with creditors.
    • If the period specified for the implementation of the plan expires without the settlement of financial obligations of the debtor.
    • If the debtor fails to follow the plan.

The court shall issue a decision to nullify the approved plan if it finds that the debtor is evading, or attempting to evade, fulfilling their obligations. This can include concealing or damaging any part of their property, providing false statements about their debts, rights, property or disposition of any of their rights or property.

What is the amount that a creditor is entitled to apply for insolvency of the debtor and liquidate their funds?

The amount is AED 200,000.

When does the court decide on the insolvency of the debtor and the liquidation of their assets?

The court shall decide on the insolvency of the debtor and the liquidation of their assets within 15 days from the date of receiving the secretary’s report.

What is the term that the court can decide to grant the debtor?

The court may, upon the recommendation of the secretary and the debtor’s request, before commencing the liquidation of the debtor’s funds, decide to grant the debtor a term under the secretary’s supervision of no more than three months. This is extendable by a similar period to reach an amicable settlement with the creditors, provided that this does not prejudice the interest of creditors.

Is it possible for any of the creditors to appeal the court’s decision to grant the debtor a time limit for an amicable settlement?

Any of the creditors may appeal the court’s decision to grant the debtor a time for amicable settlement before the Court of Appeal. The appeal shall not result in the suspension of the proceedings and the decision issued in the appeal shall be considered final.

What are the funds excluded from liquidation procedures?

    • Pension or social benefit provided to the debtor.
    • Funds required by the debtor to meet their basic needs and those of their dependents. This amount is specified by the court.

Who is prohibited from buying debtor’s assets?

The following persons may not purchase the debtor’s assets except with the consent of the court, and if it is in the interest of creditors:

    • The debtor’s spouse, or one of their relatives in the second degree.
    • Any other person who, during the preceding two years from the date of the issuance of the decision to open the insolvency proceedings and liquidate the debtor’s assets, is a partner, employee, accountant or agent of the debtor.

 When are insolvency and liquidation proceedings closed?

Following the final distribution of the debtor’s funds to creditors, the court shall issue a decision to close all liquidation procedures. This includes a list of the names of creditors whose debts are accepted, their amount and what has been fulfilled. It also instructs the secretary to publish that decision in two local daily newspapers, one in Arabic and the other in English.

What are the penal provisions in the insolvency law?

Any creditor who commits any of the following acts shall be liable to imprisonment and a fine of not less than AED 10,000 and not more than Dh100,000:

    1. If they make a claim relating to a fake or sham debt against the debtor.
    2. If they increase the debts to the debtor illegally.
    3. If they vote in any meetings on decisions relating to the settlement of financial obligations of the debtor in the knowledge that it is legally prohibited to do so.
    4. If, following the court’s decision to commence insolvency proceedings and the liquidation of funds, the debtor knowingly concludes an agreement which gives them special advantage to the detriment of other creditors.

Each insolvency debtor shall be punishable by imprisonment for a period not exceeding two years and/or a fine of not less than AED 20,000 and not exceeding AED 60,000, if the insolvency debtor is proved to cause a loss to creditors as a result of one of the following acts:

    1. Spending large sums of money in speculative business that is not required by their usual business, or in the purchase of services, goods or materials for personal or domestic use that are not commensurate with their turbulent financial situation, or they have engaged in gambling, knowing that their creditors may be adversely affected.
    2. Paying the debts of one of the creditors, and in turn causing damage to the remaining creditors within a period of six months prior to the submission of their request to settle their obligations or declare insolvency.
    3. Disposing of their funds in bad faith and at less than the market price, or resorting to harmful means, to damage creditors with the intention of delaying the declaration of insolvency and liquidating their funds.
    4. Any disbursement of money knowing that it violates the terms of the plan.

We Yasin al Hamed Advocates and Legal Consultants will help you in your jurisdiction that can help answer your insolvency and bankruptcy questions.

SOURCE:

https://www.gulftoday.ae/business/2019/11/23/new-insolvency-law-an-organised-and-transparent-system-to-settle-debts

https://gulfnews.com/uae/government/new-uae-insolvency-law-everything-you-need-to-know-1.1574160862645

Questions?

If you wish to discuss or have any questions, please contact Yasin Al Hamed Advocates and Legal Consultants :

Email: info@yalhamed.com

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Advice When Signing A New Contract

Advice-When-Signing-A-New-Contract

For business owners or individuals who are involved in a daily commercial transactions and see to sign a contract or an agreement with the other party to include their mutual understanding, it is essential and necessary when doing so to understand the main points that needs to be clarified, covered and included when drafting a contract or an agreement. It may vary from one contract to another based on the nature of the transaction or the type of the activity but in general it should comprise the main conditions of any contract. Here in this article we will try to highlight the most common mistakes that always committed by the parties which may unfortunately leads to lose the right to claim or fail to receive the full disputed right.

Essential Conditions of Contract: –

Place of the Contract:

Defining the place where the contract is made is very important point and it also differs than where the contract will be executed. It usually helps the court in determining its jurisdiction or the true will of the parties in certain occasions.

 

The Full Details of the Parties:

Apparently, you will think that it is not that important to care about this point, as definitely the Parties will write their names on the contract. But be advised that the loss of your rights may starts from that point.

Most of the Parties when drafting a contract, they negligently or intentionally don’t write their names in the correct way or in full, especially when the Parties are companies or a company and individual, also they forget to write the capacity of the contracting party or the signatory person on the contract whether personal or on behalf of a company or another individual.

Therefore, be reminded to write the full name of the two contracting parties, their nationalities and passport numbers or any ID numbers, his registered address, PO Box, Fax, Telephone and email address.

It is important also to collect a copy of the identification documents from the other contracting Party, if individual and a copy of a valid commercial license and copy of the Manager’s passport if the contracting party is a company, and if another signatory person will sign the contract on behalf of the Principal, you should have his passport or ID copy and his POA that authorize him to sign such contract.

Let us ease that matter by giving you an example for further clarification, Ahmed and Mona want to sign a Sale Agreement to sell Ahmed’s unit to Mona, but in fact Ahmed owns a Real Estate company LLC “called ABC” on which the unit is registered under its name, so let’s see the common mistakes when defining the contracting parties: –

  • The wrong way:

1.Ahmed XYZ, …… (First Party)

2.Mona, ……… (Second Party)

  • The correct way:

1.M/s ABC LLC, represented by Mr. Ahmed ………. (First Party)

2.Mona, …………… (Second Party)

You may add Ahmed and his Company as a First Party, because the property is registered under a company name and Ahmed is the real owner of the property.

Defining the parties clearly in the contract is a crucial step to protect your business transaction, some parties intentionally don’t give full details of their identification or capacity to sign this contract or don’t mention the legal form of the contracting company and this will lead to another problem when there are other companies holding the same name but slightly different in name or in legal form. So just make sure to review the identification documents of the other party or the Company license and its signatory person before signing any agreement.

 

The Subject of the Contract:

This clause should explain why the parties are signing this agreement, the purpose of having this understanding in writing, which will define in general type of the agreement whether its sale, lease, conditional sale, loan. Most of the parties fail to give proper explanation to the true will of the parties on which the judge will focus in interpreting the agreement. Thus, seeking your lawyer’s advice before you proceed with signing any agreement will be so helpful to cover any confusion that may arise afterwards.

 

The Value of the Contract and Payment Terms:

Carefully you have to write down the total value of the contract, stating in details how, when and where it should be settled by one of the parties. You may add some clauses to cover any default in payments.

 

The Term of the Contact:

If the contract has a fixed duration, so be very accurate on whether its renewable and the way of renewal or termination of the contract. In sale & purchase agreements “SPA” you have to determine when the sale will be effective whether upon signature or from the time of receiving the down payment. Additional clause can be added to avoid any default in payments such as holding the transfer of title until receipt of the full payments of the purchase price.

 

The Mutual Commitments of the Parties:

The parties are free to add all the points of their understanding, stating the obligations and when and how it will be fulfilled and the time frame. Make sure that there is no conflict or confusion between these clauses and any other clause of the contract, no repetition to the same phrase. The arrangement of the mutual obligations will help to determine whose commitments comes first, and this is one of the common arguments nowadays before the courts.

 

The Applicable Law & Court Jurisdiction:

Determining the applicable law and the competent court in the contract in resolving any disputes that may arise between the parties is very important in protecting your interests. Many factors will assist you in finding the most appropriate court jurisdiction such as nature of business, place of executing the contract and address of the parties.

You may use the Arbitration as an alternative dispute resolution, but you will definitely need an arbitration lawyer to help you in drafting an arbitration clause, after explaining not only the advantages and disadvantages of the Arbitration but also the proceedings and the cost of Arbitration in comparison to the courts.

 

Here are the main conditions that you should take in consideration when signing a new contract, there will be additional clauses to be added based on the nature of each transaction. In general, considering the above will help you in reducing the risks of any new business deal, but at all time seeking a legal advice before you sign any document will ensure that you are on the right way.

 

Questions?

If you wish to discuss or have any questions, please contact Yasin Al Hamed Advocates and Legal Consultants :

Email: info@yalhamed.com

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Lawful Termination or Arbitrary Dismissal

Have you ever faced an unfair dismissal from your employer? In this article we will try to highlight one of the most important matters that are facing the parties of any employment contract whether employees or employers. The UAE legislator has stipulates some rules to regulate and arrange the matter of termination of employment contract […]
Labour and Employment law
Have you ever faced an unfair dismissal from your employer?

In this article we will try to highlight one of the most important matters that are facing the parties of any employment contract whether employees or employers.

The UAE legislator has stipulates some rules to regulate and arrange the matter of termination of employment contract whether it happened by the employer or the employee so it will be lawful if it happened in specific circumstances or it will be considered as arbitrary dismissal.

Arbitrary dismissal is any form of dismissal or coerced resignation for unlawful or unproven reasons, or against the specific rules and regulations set down by the government.

(more…)

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Registration for VAT in UAE

About VAT Registration in UAE

A business is a serious activity requiring time and effort usually being a commercial or sometimes an industrial enterprise within its pursue to overall profit-oriented. It is also a kind of work relating to the production, buying and selling of services or goods as it aims to make a profit.

The definition of business may cover several aspects of activities, such as industrial, commercial projects etc.

In the light of the executive regulations on value added tax VAT No. 52 for the year 2017 any business that exceeds the mandatory registration limit which is AED 375,000 over the past 12 months shall be registered for VAT. Also, any entrepreneur shall be register if the expected value of taxable supplies will exceed that limit within the next 30 days.

It is noteworthy that a Dh 20,000 fine shall be subjected to the one who fail to submit a registration application within the time frame specified in the tax law.

You can also register for VAT voluntary as your total value of taxable supplies exceeds the voluntary registration limit which is AED 187,000 over the past 12 months or it is expectable to be within the next 30 days.

The taxable supplies in which is determined by the law of VAT on the percent 5% or 0% of taxable goods or services carried out in the United Arab Emirates.

Good news also is that a ‘representative member’ who represent a group of companies shall have the right to register as a tax group in order to simplify the procedures and save costs as well provided that they have an establishment in the United Arab Emirates and are legal persons under common control.

Therefore, if you about to register for VAT keep in mind to bring records of all supplies and imports of goods and services, tax invoices, accounting records and documents in relation with the business activity. Henceforth, you will have to charge VAT on your business unless the zero-rated ones.

This significant financial mechanism makes a positive contribution to enhance the economy thus provide the country to keep going along the right line of sustainable economic development processes.

Questions?

If you wish to discuss or have any questions, please contact Yasin Al Hamed Advocates and Legal Consultants :

Email: info@yalhamed.com

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